Consider the Following If the Futures Market Price Is 1

question 43

Multiple Choice

Consider the following: $$\begin{array} { l l l } \text { Risk-free rate in the United States } & 0.04 / \text { year } \\\text { Risk-free rate in Australia } & 0.03 / \text { year } \\\text { Spot exchange rate } & 1.67 \mathrm {~A} \$ / \$\end{array}$$ If the futures market price is 1.63 A$/$, how could you arbitrage?

• A) Borrow Australian dollars in Australia, convert them to dollars, lend the proceeds in the United States, and . enter futures positions to purchase Australian dollars at the current futures price.
• B) Borrow U.S. dollars in the United States, convert them to Australian dollars, lend the proceeds in Australia, . and enter futures positions to sell Australian dollars at the current futures price.
• C) Borrow U.S. dollars in the United States, invest them in the U.S., and enter futures positions to purchase Australian dollars at the current futures price.
• D) Borrow Australian dollars in Australia and invest them there, then convert back to U.S. dollars at the spot price.
• E) There is no arbitrage opportunity.

---

Definitions:

Financing Statement

A document filed by a creditor to give public notice to third parties of the creditor's interest in the debtor's personal property used as collateral.

Security Interest

A legal claim or lien on collateral that gives a creditor the right to possess and sell the asset if the debtor fails to meet the obligations of a loan agreement.

Repossess

The act of taking back ownership of property, typically by a lender or seller, from the borrower or buyer due to failure to meet repayment terms.

Financing Statement

A financing statement is a document filed by a creditor to indicate a security interest in the assets of a debtor, typically used in relation to secured transactions.